(Bloomberg Opinion) -- If you’re considering making the switch from cable TV to streaming to save money, I have some bad news for you.
YouTube TV, a streaming-video service owned by Google’s parent Alphabet Inc., just raised its monthly subscription fee from an already steep $50 to an even steeper $65. To put that into perspective, the $15 rate hike is more than the price of one whole month of Netflix. Tack on the cost of an internet connection, which is needed to stream, and YouTube TV starts to look like not much more than a glorified cable package. It’s emblematic of a broader industry conundrum: a need to raise prices that are already too high from a consumer’s standpoint, yet not high enough for streaming companies to have any hope of turning a profit.
YouTube TV has been a favorite among cord-cutters, in part because it tends to have fewer annoying glitches and more content. But $65 may change even some of their minds, especially with the U.S. economy sputtering. The app is in a category known as skinny bundles, which offer a few dozen live channels over the internet (though they’ve gotten chubbier over time as media giants try to stuff in all the channels they can). There’s been a proliferation of services like it in recent years, and yet none has quite been able to replicate cable affordably with the customization that consumers want. They all lose money, according to analysts, YouTube TV included. Sony’s PlayStation Vue — which was also well-liked by those who used it — shut down earlier this year, saying that it was too expensive to compete given the cost of programming.
Sony probably won’t be the last company to give up on the streaming wars. Quibi, the startup created by Hollywood veteran Jeffrey Katzenberg — he was the “K” in DreamWorks SKG (the “S” was Steven Spielberg) — looks to be hanging on by a thread. The 90-day free trials that Quibi offered at its launch begin to expire July 5. Will enough consumers be willing to pay $5 a month for its service? It’s not looking likely.
Quibi’s $5 may sound cheap compared to YouTube TV’s $65, but you get what you pay for, and the wide range of prices in the streaming industry is indicative of that. For example, even though Disney+ contains high-quality content from its beloved “Star Wars” and Marvel franchises, the app doesn’t have much else, hence it charges just $7 a month. At $13, Netflix still probably offers the best bang for your buck. YouTube TV did say it’s “working to build new flexible models,” which could signal different tiers of pricing in the future.
In a dream world, consumers could just choose from a-la-carte menus, but that’s not in the best interest of programmers and distributors. Both sides have turned to megamergers in the last few years — AT&T-Time Warner, Charter-Time Warner Cable, CBS-Viacom, etc. — to regain negotiating power over one another and to stand a chance of taking on tech giants such as Google. Programmers use their scale to force their entire network portfolios onto streaming apps so that their less-popular ones don’t get left out.
YouTube TV’s latest price increase comes on the heels of it adding eight of ViacomCBS Inc.’s top networks to its lineup, including BET, MTV and Nickelodeon, with six more niche ones on the way, including MTV Classic and TeenNick. To be fair, though, each of those is relatively inexpensive. What usually makes TV packages so costly is live sports — and that’s true even with most sports off the air this year due to the Covid-19 pandemic. Walt Disney Co.’s ESPN+ is reportedly raising its fee by $1, to $6 a month.
If YouTube TV can get away with its new rate, then Netflix probably has room to raise its own price some. That prospect drove Netflix shares to a new all-time-high closing price of $485.64 on Wednesday, giving it a mind-boggling valuation of 42 times Ebitda.
YouTube TV is the closest you’ll get to a traditional cable package, in that it has lots of live-TV channels, including sports, and common add-on options such as HBO and Showtime. But if you want streaming to look like cable, you’ve got to pay cable prices. Not even Google will eat those losses forever.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Tara Lachapelle is a Bloomberg Opinion columnist covering the business of entertainment and telecommunications, as well as broader deals. She previously wrote an M&A column for Bloomberg News.
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